Communicating Value Beyond Price

Pricing as a Unique Opportunity for D2C Brands

When done correctly, brands can compete on tangibles like price. Since direct-to-consumer brands cut out the middleman by definition, the economics naturally enable brands to offer better price points for higher quality or distinctive products.

However, direct brands are as subject to commoditization pressures as indirect ones, making differentiation by function or price alone difficult. This strategy works only when coupled with a strong brand that speaks to consumers. But for many direct-to-consumer brands, that aspect comes easily. The hard part is developing a competitive pricing strategy that is sustainable at scale.

Going too low can be risky — both for business and brand reputation. You need to toe the line between being affordable without cheapening your brand.

So how do you find the right price point? It’s a balance of being competitive in your market and meeting your audience’s needs, while adapting strategy as you grow and expand product lines.

Finding Your Niche Among the Competition

When you’re starting out or entering a new space, you’ll want to take a look at the market landscape for your vertical to see where there’s room to grow and where there’s heavy competition before setting your pricing.

Since we launched five years ago, there are definitely more direct-to-consumer brands in the watch and accessories space now than there were then. Being an early player in your industry gives you more freedom to choose pricing based on your needs — but it’s also a risk because you have less of an idea of what consumers are willing to pay for a similar product.

Another thing to take into account is your goal margin. You’ll need to support not just production, but also operating and marketing expenses. Make sure to cover your bases there, but do not mark up more than you have to. With transparency being a core value among consumers, you really need to pass on as much value as you can to shoppers.

From there, it’s really a balancing act of sourcing and building the product with the best components to fit the original vision and intended price point. Shop around until you find suppliers that you’re happy with — compromising on price or quality will come through to customers.

Aligning Expectations on Price

Consumers instinctually align price with quality. While this should be true most of the time, as a watch brand, we’re in a space that was previously owned by a handful of wholesale-driven brands that had to mark up to afford their business model. The shift to direct-to-consumer is still relatively recent so customer perception is still shifting.

As the market changes, we’ll continue to see that the brands that maximize profit margins without aligning their product to consumer demand will need to discount to sell enough. However, brands going with this tactic can potentially get stuck in a discounting or markdown cycle as shoppers become “sale-trained,” and religiously wait for the the lower prices they know are coming. When your products are sold exclusively in this sort of markdown cycle, it ultimately degrades your brand, regardless of initial pricing. To avoid this type of scenario, it’s critical to consider consumer expectations and behaviors when setting prices.

On the lower end of the pricing spectrum, consumers have become addicted to “more, cheaper, faster,” but this shouldn’t drive the decisions for your brand. In our case, we may see efficiency when we advertise our opening $95 “good” price point, but we aim to educate our customers on product features and the brand to graduate them to our “better” and eventually “best” products and price points. Shoppers need to know that they are getting more when they pay more.

Changing Pricing as Your Business Grows

Whether you’re expanding your product offering or transitioning to multi-channel, there are several shifts in growing a business that can be a natural opportunity to raise prices or change your pricing model. What works for one category, or product line within that category may not work for another.

The same is true for moving into new channels — as a direct-to-consumer brand, this changes the total margin profile depending on the share of the business and costs per channel. There’s no blanket pricing change built in to these scenarios — you have to build a go-to-market strategy for each piece of the pie.

One important thing to keep in mind is that affordability doesn’t necessarily mean lower-priced: it should be reflective of the product construction and the end value to the consumer. So moving into an upscale product line doesn’t mean becoming an “expensive” brand — it means finding the most affordable way to provide the extra value to your customers. You should aim to keep improving your product features, functionality, and quality while maintaining your original affordability promise.

Conclusion

• Do your research. If you’re in a crowded industry, you won’t have as much freedom when it comes to choosing a price point. Keep a close eye on competitors to avoid over or under-pricing.
• Meet consumer expectations. Overpricing can get you stuck in a discount cycle, whereas underpricing can lead consumers to believe your products are low-quality. Do your best to educate shoppers on the value they are getting when they purchase your products.
• Consider pricing changes on an individual basis. If you’re going multi-channel or expanding your product line, there’s no one-size-fits-all pricing shift. Do your research to make sure you’re able to maintain your goal margins while keeping your promise of affordability.